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Calm under pressure

Operating costs have skyrocketed, profits have tumbled, and there’s political unrest in the region… but nothing seems to faze Royal Jordanian CEO Hussein Dabbas

Hussein Dabbas, CEO Royal Jordanian

By Robeel Haq

Tue 08 Mar 2011 12:00 AM

Continued unrest in the Middle East and North Africa has once again highlighted the fragile nature of airline operations. What started in Tunisia and eventually spread to countries such as Egypt, Yemen, Libya and Bahrain will cost the aviation industry millions of dollars in lost revenue. However, rather than panic about his bottom line, Royal Jordanian CEO Hussein Dabbas is focused on ensuring the safety of those trapped in conflict areas.

Around a month ago, the airline was instructed by King Abdullah II to transport all Jordanian citizens that were stranded in Cairo and Alexandria back to their homeland, at the expense of his majesty. Around 5500 people benefitted from the generous offer, with large capacity Airbus A310s and A321s being deployed on six daily flights, some of which were only a quarter full. “The cost of the operation is irrelevant, we were committed to fulfilling the royal directive and ensuring the safe return of our citizens,” explains Dabbas with a sense of pride. “Our attention has not shifted to Libya, where a 285-seat Airbus A330 has been shutting between Amman and Tripoli to assist more than 2000 people returning to the Kingdom.”

Dabbas is well-known within the industry for remaining calm under pressure, a characteristic that has steadily been developed over his 31-year strong career at Royal Jordanian. After joining the national carrier in 1979, at the tender age of 30, he has proved his mettle in a number of different positions, from general manager of operations in the United States, to vice president of marketing, sales and services. However, it wasn’t until August 2009 that Dabbas really took centre stage, replacing Samer Majali as the airline’s chief executive officer.

“Working in this part of the world, where we have soared to the top of mounts, but also plunged to the bottom of valleys, I would say having a calm demeanour is essential,” he laughs. “Royal Jordanian celebrated its 47th anniversary last December and it’s been an interesting history, with plenty of challenges along the way. Take the 1967 war for example, when our fleet was destroyed and we had to rise from the ashes. But I have to say, the people that headed this airline over the years have done a marvellous job. In particular, working with Samer Majali was a great experience, as I learned firsthand how to turn challenges into opportunities.”

Dabbas refers to Royal Jordanian as a boutique airline, with a fleet of 29 aircraft that serve 58 destinations around the world, in addition to a broader network of more than 750 locations through its membership of the oneworld global airline alliance. During the course of last year, passenger volumes increased by 13% compared to the same period in 2009, reaching a total of 3 million, while operating revenues were also boosted by 14% to US$965.5 million. However, shunted by 20% higher operating costs, the airline’s gross net profits dropped from $40.3 million in 2009 to $13.5 million last year, a staggering 66%.

“The drop in profits was unfortunate and our board was not very happy with it, but competition has become sharper and operational expenses have jumped from $710.3 million in 2009 to $850 million last year. A big part of that is fuel, which cost 35% more, as well as handling costs,” explains Dabbas. “And then we faced the ash cloud crisis and snow storms in Europe and the US, so in consideration of these factors, I still believe the profit is quite acceptable and we are doing well. Of course, the situation in countries such as Tunisia and Egypt will have an instant impact on our first results for 2011, but hopefully the situation will calm. Travellers from overseas tend to look at the Middle East and North Africa as one country, so such events will impact the region as a whole.”

Looking ahead, Dabbas states that no effort will be spared to control costs, increase revenues and open new markets to boost Royal Jordanian’s presence on a regional and international level. A fleet modernisation programme has also commenced, with all existing Airbus A340s being refitted to include new seating, along with in-seat, in-flight entertainment. In addition, two Airbus A330s and an Embraer 175 have been introduced over the past year, while new aircraft will be drafted in 2011 and 2012 to replace four A320s and two A321s. And then, of course, there is the delivery of 11 much-awaited (and much-delayed) Boeing 787s, the first of which were ordered back in 2006 with delivery initially expected a couple of years later. That never happened, of course, due to a series of well-publicised delays, the latest of which included an in-flight incident during testing last December, placing the latest delivery date of 2013 into jeopardy.

“Better late than never,” laughs Dabbas. “Of course we’re not happy about the delay, but neither is Boeing. We’re waiting to receive an official update from them, although from what I’m hearing in the market, my gut feeling is that there will be a slight delay, maybe 2014. Let’s hope it’s a matter of months, rather than years.” Dabbas maintains there are no regrets over the purchase and that the B787s will become the backbone of Royal Jordanian’s long-haul operations, initially being placed on North America routes, including New York, Chicago, Detroit and Montreal. “This model is the first of its kind. Of course, Airbus is making the A350, but that is still a few years away,” he says. “The range capability and economics of the 787 will allow us to competitively serve North America and other destinations in our network from Amman. Its unique passenger appeal will enable us to provide a competitive advantage in the markets we serve.”

Such advantage has become increasingly important in the region, with Royal Jordanian facing more and more competition from both full-service and low-cost carriers. The latest entrant in the local market is UK-based budget airline EasyJet, which commences flights from London Gatwick to Amman this month with one-way fares starting from $118, including taxes. Considering the fragile nature of Royal Jordanian’s financial results, could this be the final straw that break’s Dabbas’ unflappable persona? Apparently not. “We are open to competition, it’s a healthy thing and low-cost carriers have operated in the region for a long time, especially in the Gulf,” he says with conviction. “EasyJet is very welcome and we look forward to them bringing in more tourists to the country, rather than focusing on the current market. Don’t forget that we have been in this situation before, when low-cost operations were launched between Dubai and Amman. In the summer, you now have 14 to 15 flights a day on that route, but they have only increased the market. Instead of our passenger numbers falling, they increased by 25% between Dubai and Amman last year, so we are not worried.”

On the contrary, media reports have suggested that Royal Jordanian is considering the launch of its own low-cost subsidiary to directly compete with the likes of EasyJet, as well as FlyDubai and Air Arabia in the UAE. “At the end of the day, we’re a full service airline, with benefits such as in-flight entertainment and a choice of meals in economy class. So our market is different to the LLCs,” adds Dabbas. “But working in the aviation industry, you have to be dynamic and have an open mind. So it’s true that we’re considering the launch of a low-cost subsidiary. If the timing is right, and we believe such a project would benefit Royal Jordanian and the country as a whole, then we could explore this option. Studies are underway, similar to when we launched cargo and charter operations, but it’s not a certainty.”

In fact, rather than the low-cost option, its actually the growing trend of consolidation in the aviation industry that has captured the attention of Dabbas, especially with the successful British Airways-Iberia, Air France-KLM, and Lufthansa-SWISS partnerships in Europe. “These strategic alliances and joint ventures have become a major threat to airlines in this part of the world. We have to wake-up and understand the importance and benefits of such developments. I think consolidation is inevitable in the Middle East too,” he explains. “In the Gulf, for example, you have five or six major airlines within a 200-mile radius, with huge airports and infrastructure developments. However, in other parts of the Middle East, such as Jordan, our pockets are not so deep and we must keep an eye on our balance sheets to ensure the numbers are black. So, I believe in the future, and that could mean anything from a year to a decade, Royal Jordanian will need to look at a strategic alliance.”

Even with prompting, it’s difficult to clarify which airlines Dabbas has in mind as alliance candidates. However, he’s willing to reveal an outline of his criteria. “It would need to be the right partner, where the chemistry is matched and we can benefit from each other’s strengths, so finding the ideal partner would take some time. It cannot happen with government-owned airlines, as private carriers such as Royal Jordanian have to be more commercially minded. We have a duty to increase the value of our shares,” he concludes. “Whether you look at British Airways-Iberia, Air France-KLM, or Lufthansa-SWISS, they have a cooperation that strengthens each other’s operations, but retains their individual status as national carriers. That concept is very valid and appealing in the Middle East too.”